Clerical Error at Time of ITR Filing does not Alter True Character of Exempt Income [ITAT Deletes Addition]

The appellant is a Staff Provident Fund Trust, registered with the Chief Commissioner of Income Tax, Kolkata, vide order dated 31.01.2008, and its income is fully exempt from tax under Section 10(25) of the Income Tax Act, 1961.

While filing the return for AY 2018–19, the assessee erroneously reported dividend income under Section 10(35) instead of Section 10(25) of the Income Tax Act.

The Centralised Processing Centre (CPC), Bengaluru, disallowed Rs. 10 lakhs out of the total dividend of Rs. 21,83,402 by invoking Section 115BBDA, treating the dividend as taxable.

The CIT(A) affirmed the disallowance but did so based on an incorrect understanding, mistakenly treating the issue as related to the late deposit of PF/ESI contributions.

The assessee stated that all its income, including dividends, is exempt. Reporting dividend income under Section 10(35) was a clerical mistake, and an addition cannot be made on its basis.

The CIT(A) misinterpreted the facts by linking the issue to delayed PF/ESI deposits, which was factually incorrect and unrelated to the matter at hand. CIT(A)’s order based on a factual misunderstanding is not sustainable.

Tribunal held that a clerical mistake while filing ITR does not alter the true character of the exempt income. Section 115BBDA, which taxes certain dividend income exceeding Rs. 10 lakh, is not applicable to a tax-exempt entity under Section 10(25). CIT(A)’s order cannot be upheld as it is based on a wrong understanding.

As a result, the addition was deleted by the Income Tax Appellate Tribunal.